More Courtroom Maneuvers in Martha Stewart Case

After weeks of Macy's presenting evidence, Martha Stewart and Penney will be presenting their side starting Thursday.

NEW YORK (AP) -- J.C. Penney(NYSE:JCP) has started to sell non-branded home goods like towels and pots designed by Martha Stewart on its website, but the fate of the merchandise remains in limbo.

On Friday, New York State Supreme Court judge Jeffrey Oing had ruled that Penney could sell the products under the label JCP Everyday until a lawsuit that Macy's(NYSE:M) is waging against Penney and Martha Stewart is decided. Macy's had argued that the JCP Everyday products violate its long-standing exclusive agreement with Martha Stewart Living Omnimedia(NYSE:MSO).

But Macy's, based in Cincinnati, filed an appeal Monday, and an appellate judge is expected to make a decision Thursday on the department store's request to temporarily block Penney from selling the non-branded goods while the appeal is pending. An appellate panel of five judges is expected to rule by late next week on the specific issue.

A temporary order made last summer by Oing still bars Penney from selling Martha Stewart-branded goods in certain areas like cookware and bedding that are covered by the exclusive contract. After the order was implemented last year, Penney sidestepped the dispute by going ahead and manufacturing the goods under the JCP Everyday brand.

The courtroom maneuvers are the latest in a heated court battle that started late February over a partnership with Martha Stewart. Macy's, which has had a merchandising contract with the home maven since 2006, sued Martha Stewart and Penney after they signed a deal in December 2011 to develop mini Martha Stewart shops slated for this spring.

J.C. Penney could face a $100 million hit if it had to liquidate the JCP Everyday inventory that it already purchased, according to Deborah Weinswig, an analyst at Citi Research. Any ruling on the JCP Everyday goods would still be preliminary and if Macy's prevails in the overall court case, Penney could face costly damages.

The developments come at a time when the Plano, Texas-based department store chain is in a severe cash crunch after a botched turnaround plan spearheaded by its former CEO Ron Johnson early last year has resulted in disastrous results. Johnson was ousted last week after only 17 months on the job and was replaced by Mike Ullman, who had been his predecessor.

Penney is selling other goods like curtains and rugs branded with the home maven's label that are not covered in Macy's exclusive contract. But Penney had planned to have Martha Stewart shops anchor a new home area that's being rolled out this month. The rollout of various home shops devoted to names like Jonathan Adler and Michael Graves was part of Johnson's vision to transform Penney into a mini mall of specialty shops.

After weeks of Macy's presenting evidence, Martha Stewart and Penney will be presenting their side starting Thursday. Oing says he wants to wrap up the testimony by April 26.